Consolidating Private Student Loans

Posted on January 20, 2011 by admin

Consolidating Private Student LoansDue to increased tuition costs, many graduates and students have a combination of private and government student loans. Although this may not seem important at the time, consolidating these loans after graduation must be approached correctly. Failure to understand the differences in the two types of loans can result in a substantial increase in the amount you have to repay for your education.

As a rule, government and private loans should never be combined when consolidating your educational loans. Government loans will not consolidate private loans and private lenders cannot provide the same rate the government loans offer. Therefore, if you wish to consolidate your student loans, it is best to consolidate private and government loans separately.

Advantages and disadvantages of consolidation

Before committing to loan consolidation, it is important that you understand that there are advantages and disadvantages to consolidation. This applies to both government and private student loans. For some students, the disadvantages exceed the benefits.

Consolidation has proven to be an effective means of managing educational debt for many students. It offers a convenient monthly payment which is often lower than the total amount of the original loan payments being consolidated. Payments are often lower because the term of the loan is reset. However, this often results in an increase in the total amount of interest paid for the life of the loan. This is one of the many disadvantages.

The increased amount in interest to be paid can sometimes amount to thousands of dollars. To many students, this does not seem like an effective means of managing debt. Loss of benefits that you may already have with your current lender will also occur. One of the main benefits affected is that of interest rate discounts.

Interest rate discounts on consolidated loans are generally less favorable than the original loan. This includes both automatic payment and timely payment benefits. These are the many factors that you should carefully consider before settling on the decision to consolidate your private student loans.

Finding a lender

If you have determined that consolidation of your student loans is the only way that you can effectively manage your payments, finding the right lender is crucial. Lenders should be researched and compared, based upon your personal and financial situation. You may also check with your current lender to see if a rate reduction is an alternative to consolidating. If an increase in your credit score has occurred during your studies, your lender may be willing to negotiate a new interest rate in an effort to continue carrying your loan.

To assist you in choosing the right lender, there are a few key questions that you can ask private lenders. First, you will want to find out if the rate they offer is fixed or variable. This can greatly alter the total amount of interest that you pay over the life of the loan. Private lenders are now limited because of the economy change over the past few years. The following list, not provided in any specific order, are the only private lenders left.

NextStudent Private Loan Consolidation

NextStudent requires that you have a minimum total student loan debt of $7,500 and allows for a maximum of $300,000 combined debt. They provide loan terms for up to 30 years. There are no prepayment penalties. Interest rates vary quarterly. They also have origination fees ranging from 0%-5%.

Chase Private Loan Consolidation

Chase Bank requires you to have a minimum combined debt of $7,500 and a maximum debt of $150,000. Chase does not have any origination fees and allows up to a 30 year loan term. A co-signer may be used if you do not meet credit criteria. The co-signer can be released from your loan after 36 months if you meet their credit criteria.

Wells Fargo Private Loan Consolidation

Wells Fargo requires you to have a minimum combined debt of $5,000 and a maximum of $40,000-$100,000. The maximum combined debt is based upon your credit. Through Wells Fargo, you are allowed a maximum of a 15 year loan. Interest rate is variable and there are no origination fees. They offer an interest rate reduction for auto payment and an additional reduction rate after 48 on-time monthly payments.

Student Loan Network Private Loan Consolidation

Student Loan Network requires that you have a minimum of $10,000 combined debt and a maximum combined debt of $300,000. For balances less than $40,000, they offer a loan term for up to 20 years. Amounts exceeding $40,000 can have up to a 30 year loan term. Origination fees can be between 1% and 5%. There are no prepayment penalties and the interest rate is variable. A co-signer can be used and released after 48 months of on-time payments if the primary borrower meets credit criteria.

Understanding what different private lenders offer can assist you in making the best financial decision concerning your student loan consolidation. Be sure that you are clear on the terms specified in your contract. This will eliminate any unexpected surprises after the loan is in repayment.

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Consolidating Government Student Loans

Posted on January 20, 2011 by admin

Consolidating Government Student LoansStudent loan consolidation is often an effective means of managing debt for students, parents, and graduates. Combining loans can leave you with one easy payment each month. Depending on the terms of the loan, this can also reduce the monthly payment. However, this can cause an increase in the amount of interest that you pay over the entire life of the loan. To help decrease this cost, it is important to understand the different types of loans and your options.

Government vs. Private

There are two basic categories when considering student loans; government and private. Government loans are offered by government financial institutions. Private student loans are offered by private lenders, most often, a bank. There are two large differences between the two categories rests within the interest rates and benefits that each one offers.

Private loans are not offered the same interest rate discounts as government loans. The interest rates are determined upon economy factors and your credit. Private loans can also require an origination fee. Additionally, private loans do not offer the same benefits as government loans. The only benefits that are offered by private lending institutions are interest rate discounts based upon timely payments and automatic payment.

Government loans offer a much lower interest rate. They also have a number of benefits. The benefits offered will vary, depending on the type of loan. You should also note that any benefits you have with your current lender will be lost after consolidation. Once the consolidation is complete, you will have a new lender with new benefits.

Because government loans offer better benefits and more desirable interest rates, it is highly advisable that you do not combine the two types of loans. Government lenders will not purchase private loans and private lenders cannot offer you the same rates or benefits on your government loans.

Government consolidation

Since your best option is to consolidate government loans separate from your private loans, you will need to know how to comparison shop your government loan consolidation options. Different government loan consolidation plans offer different types of benefits. This is the only difference between government lenders since variables like interest rates and payment terms are regulated by the government.

Stafford Loan Consolidation

Stafford loans are the most widely known member of the government loan family. They are offered in subsidized and unsubsidized versions. These are offered through either a Direct Loan Program of a FFELP lender. Most students have a combination of subsidized and unsubsidized Stafford Loans.

There are certain rules and guidelines that your Stafford Loan lender must adhere to. These are mandated by the government. Interest rates on consolidated Stafford Loans are fixed. The rate is determined by the weighted average of your combined interest rates with a cap of 8.25%.

If you are a graduate within the six month grace period, you may qualify for a lower interest rate before your repayments start. Federal government also states that you cannot apply for consolidation while you are in school. There are no credit checks and no penalties for early payment. However, if any of your loans are in default, you may not be eligible for Stafford Loan consolidation.

Direct Loan Consolidation

Direct Consolidation loans can combine any federally loaned educational funds. These include Stafford Loans, PLUS Loans, and Direct PLUS loans. Similar to the Stafford Loan consolidation option, Direct Loan consolidation is regulated by the government.

Direct Loan consolidation is intended for students and families that have financial disadvantages. They offer flexible repayment options and credit terms. There are no credit checks or fees associated with Direct Loan consolidation. You are not required to have a minimum combined amount in order to qualify for a Direct Loan Consolidation.

Interest rate is fixed through the entire life of the loan and is based upon the weighted average of your government loans, capped out at 8.25%. You may still be able to qualify for a Direct Loan consolidation, even if one or more of your loans are in default. This is usually contingent upon reaching satisfactory repayment terms.

Perkins Loan Consolidation

Perkins Loans do not offer a consolidation option. However, you can consolidate your Perkins loans with any of your other government loans. However, it is advised that you seek the guidance of your Perkins loan counselor before consolidating your Perkins loan.

Perkins Loans offer a large number of benefits to their borrowers. Perks like cancellation benefits if you become a public school teacher will be lost. You will also lose your nine month grace period, three months longer than Stafford Loans. These benefits are available to you as incentive to pursue teaching as a career.

Carefully considering your credit future, career future, and current situation is vital to selecting the right consolidation plan. In many cases, you can find other options outside of consolidation. This may provide you a more effective means of managing your educational debt.

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Benefits of Student Loan Consolidation

Posted on January 20, 2011 by admin

Benefits of Student Loan ConsolidationFor many graduates, student loan consolidation provides an effective means of managing their debt. Although there are some negative aspects that you should consider, there are multiple benefits to approaching your loans in this manner. Carefully considering your financial situation and weighing out all of your options can help you to make the right financial decision.

Interest rate

If you have multiple loans with multiple variable rates, consolidating your loans will provide you with a fixed rate that is weighted on the rates you currently have. Do not be fooled into thinking that this will save you money. It does, however, remove variable rates. Consolidation provides you with a fixed rate for the term of the loan, allowing you to lock in any lower variable rates you may have.

Locking in a rate during the grace period can be extremely beneficial. This is the time in which your interest rates are the lowest. However, it is important that you understand that by consolidating, you eliminate your grace period. Repayment of all loans would begin once the loan is finalized.

Benefits

Although you will lose the benefits that you have with any existing lenders, you may be able to acquire new benefits with the lender you choose to consolidate with. Some lenders offer benefits like life-of-loan servicing. This ensures that, for the life of your loan, you will have the same benefits. You should check to see if the lender you are considering has this option available.

Some lenders also offer special interest rate benefits. These are usually contingent upon timely payments or automatic payment options. Again, these benefits are not offered by all lenders, so you should check to see if the lender you plan to use offers any of these benefits.

Payments

By consolidating your loans, you only have to make one monthly payment. This payment is often lower than your original combined payments. However, payments are often extended. Extended payments do have their disadvantages. Depending on how much you owe on your student loans and how long of a repayment plan you choose, you can end up paying thousands of dollars more over the life of your loan. To avoid this common occurrence, it is best to limit yourself to a ten year loan. Although your monthly payments may be higher, you will avoid paying excess interest.

Some lenders do offer flexible repayment plans and there are no pre-payment penalties. By consolidating, you may be able to find a loan term that better fits your personal and financial needs better than your current loans. Careful consideration of possible lenders and loan terms can help you to determine if this will be a benefit for you.

Debt management

Although it is not true in all cases, some graduates are able to utilize consolidation as a proper means of debt management. By combining all loan payments into one convenient monthly payment, there is less of a chance of forgetting to make a payment, avoiding late fees. It can often provide a better handle on your overall financial picture by making your student loans more manageable.

In most cases, an extended loan life is not beneficial. However, there are situations in which an extended loan payment can be beneficial. Situations in which financial stability can be achieved during the infancy of the consolidation can pave the way for increasing payments in the future. By increasing principal payments during loan repayment, the length of the repayment plan can be reduced. This also reduces the amount of interest that you will have to pay towards your educational loans.

Marital consolidation

Many married couples choose to consolidate loans to make the debt more manageable. However, this option should be considered carefully. In order to qualify for deferment, both you and your spouse would have to return to school at the same time. Since most couples stagger their return to school, deferment may not be an option if marital consolidation is chosen. Additionally, marital consolidations cannot be separated if you and your spouse divorce.

Easy qualifications

Student loan consolidations, in most cases, are easy to qualify for. Depending on whether you select a private of federal lender, credit checks may not be required. You do not have to worry about the need for a co-signer in situations that credit is not considered. There is also no fee to consolidate your student loans.

Some lenders do require an upfront payment. However, this payment is applied to the balance of the loan. Do not ever use a lender that mentions a fee for consolidating your loans. If you are ever in doubt about the information that a lender provides, you can contact the Department of Education for more information.

Student loan consolidation is not for everyone. In fact, there are many situations in which consolidation will only further complicate your debt. Carefully weigh your options and compare lenders. By doing this, you can accurately determine if you will receive benefits from student loan consolidation and if it is right for you.

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